Manufacturing business confidence gained 12 index points in the Stellenbosh-based BER’s latest Manufacturing Survey, with the index reaching 47 during 2012Q1. The previous survey (2011Q4) showed notable improvements in business conditions after the soft patch in the preceding two quarters. However, manufacturing business confidence remained low at 35 index points.

“Apart from catching up given the continuation of relatively favourable conditions as well as some respite in global uncertainty, the main driver behind the rise in manufacturing business confidence is likely to be the fact that domestic sales performed better than expected” said BER economist Christelle Grobler.

Domestic demand remained firm during the quarter, with the order volumes indicator rising to its highest level since 2007Q4. Moreover, the results indicated that manufacturers were able to boost the rate of increase in average domestic selling prices significantly while input cost pressures did not accelerate notably further – implying some improvement in the profitability of local sales. However, after a revival in the previous quarter, export performance came under renewed pressure. “The latest readings for foreign sales and orders are in line with the economic growth slowdown of our major trading partners and the strengthening of the rand exchange rate (on average) during the quarter” said Grobler.

The survey did not provide evidence of further acceleration in the production tempo during 2012Q1, with the number of respondents reporting an increase in production volumes dropping slightly. The percentage rating the present level of output below capacity increased marginally from 73% to 74%. Although the average hours worked per factory worker increased, manufacturers continued to report having fewer factory workers employed.

Apart from the rise in business confidence, producers made a significant upward adjustment to expectations regarding business conditions in 12 months’ time. In line with this, the fixed investment indicator improved notably during the quarter. “Fixed investment intentions (12-months ahead) also came in higher. This noticeable trend confirms that the recovery in manufacturing fixed investment is taking hold” said Grobler.